Welcome to the M&T Bank and Hudson City Bancorp Merger Conference Call and Webcast. Hosting the call today are, Mr. Robert Wilmers, Chairman and Chief Executive Officer of M&T Bank Corporation and Mr. Ronald Hermance, Jr. Chairman and CEO of Hudson City Bancorp. They are joined by Rene Jones, Chief Financial Officer of M&T Bank Corporation. Today's presentation is being recorded and will be available for replay following the call.

At this time, all participants have been placed in a listen-only mode and the floor will be opened for your questions following the presentation (Operator Instructions).

I will now turn the call over to Mr. Donald MacLeod and Director of Investor Relations for M&T Bank Corporation. Please go ahead.

Donald MacLeod

Thank you, Beverly. Good morning and welcome to our investor conference call to discuss the merger of M&T and Hudson City. Following our prepared remarks, we will have a question-and-answer session.

The slide presentation we are using today is available with this joint press release issued earlier are available on both, M&T and Hudson City's websites in the Investor Relations section. A replay of the call will also be available on the website after the call.

During this conference call, some of the information discussed will contain forward-looking statements within the meaning of the federal securities laws. These forward-looking statements which M&T and Hudson City specifically disclaim any obligation to update or revise are not guarantees and management cautions that a number of factors could cause actual results or outcomes to differ materially than those indicated by such forward looking statements. I also refer you to the risk factors closures that M&T and Hudson City made in respect of Form-10Ks.

M&T and Hudson City will file materials related to the preferred merger with the SEC. Investors are urged to read those materials once they're available. These additional materials can be obtained free from the SEC's website at www.sec.gov, and from the company's websites. In addition, M&T Hudson City and their respective directors and executive officers may be deemed to be participants in any solicitation of proxies in connection with the proposed merger.

Information regarding interest of these participants can be found in M&T's Hudson City's most recent proxy statements filed with the SEC, and additional information will be contained in the joint proxy statement and prospectus to be followed by M&T and Hudson City.

At this time, I would like to introduce Robert Wilmers. Mr. Wilmers?

Robert Wilmers

Thank you, Don, and good morning, everyone. Earlier this morning, we announced a definitive agreement of merger between M&T Bank Corporation and Hudson City Bancorp Incorporated. To start this call, I'd like to offer a few thoughts as to why we believe this merger makes sense to us.

First, each of us frames an element to the deal that compliments the other. In the case of M&T, Hudson City's strong capital base combined with its high quality portfolio of residential mortgages which carry a favorable risk weighting under regulatory capital rules, will result following a restructuring of a Hudson City security portfolio and long-term borrowings and an immediate start step up in the regulatory capital ratios for the combine company, particularly for the Tier 1 common capital ratio on which regulatory and investment communities have been focused.

On Hudson City side, combining with M&T and asset-sensitive balance sheet will mitigate the interest rate risk position they find themselves in today. Further, the combination with M&T will enable Hudson City to move beyond its near-monoline focus on originating and holding residential mortgages toward becoming a full service commercial bank with a wide array with consumer and commercial banking products and services.

In addition of a strong provider of these products and services in the Hudson City's banking footprint will surely benefit those customers and those communities. To accomplish this evolution to a full-service commercial bank, M&T expects to hire experienced, commercial and retail bankers in these communities.

Those of you who know us well know that while we have been somewhat acquisitive over the years, our acquisition focus had always been on deals that made sense from the standpoint of our customers, employees and shareholders.

One thing we've never focused on is filling out our franchise from a geographical perspective, adding pins on the map solely to fulfill someone's idea of "completeness". However in this case, in addition to making full financial and strategic sense the geographic fit also works quite well.

While M&T has now full service branches in New Jersey, we've long had a presence across the river in New York City, and up into the Hudson Valley, and of course we've had our commercial bankers active in the New Jersey marketplace for a number of years now.

As you will see in one of Rene's upcoming slides, we've had some level of success but we've always believed that a strong branch presence is a key component of commercial banking and Hudson City's branch network should enable us to take our efforts in the greater New York metropolitan area to a higher level.

Hudson City's shareholders will have option to receive and M&T stock when the merger is consummated. We believe there is no better stock to own. In the slide deck we'll go through shortly, you will see M&T's superior long-term earnings and dividend growth trends and our best-in-class return to shareholders.

Finally, we believe that two bank share common set of values. These include respect for our experienced and long-tenured employees and our common commitment to the best corporate citizen in the markets where we operate.

Over the past 25 years, we have completed 23 mergers and acquisitions. In that time, we've become convinced that a combination with a partner who shares a common philosophy toward employees, customers and communities, offers the best chance for that combination to create value for our shareholders.

We believe, we found such a partner again in Hudson City. As a further acknowledgement of this common philosophy and of a partnership, I have asked the Hudson City's CEO Ron Hermance to join M&T Bank Corporation's Board of Directors and he has accepted

Now it's my pleasure to introduce Ron Hermance.

Ron Hermance

Thank you, Bob, and good morning everyone. I want to say that I'm delighted to be here today and tell you why I believe this transaction makes so much sense for Hudson City's investors, customers and employees.

The Hudson City business model has served our customers well for many years. When the financial crisis in a great recession challenged our model, we spent a great deal of time in discussions of future directions. The central question was what will our customers want from us in the years to come? The answer was our customers who want pretty much exactly the kind of resources, products and services that will come to them through the merger.

As you know, we were prepared to pursue this direction on our own, but when the opportunity combined with M&T rose, the argument was a simple one. We can give our customers just what they wanted but much, much faster, and we can be guided every step of the way by people who are already doing all these things extremely well.

From the beginning of discussions it was clear that M&T valued our team, working with customers and selling the combine companies full range of commercial banking products and services. We believe with the merger makes good financial sense for our shareholders. Hudson City's shareholders will have the options to review stock in a bank that has been very well managed for many years, including throughout the financial crisis when it was able to maintain its dividend and experienced no losses The transaction is immediately accretive to capital generation and GAAP and operating earnings per share. For our customers, I believe this is a great transaction as well. M&T will acquire all of our 135 branches with minimal overlap.

An important element of the overall strategy of the combined bank will be to grow both, the deposit and lending businesses of our bank with additional products and services for our customers. They will build on our outstanding franchise to offer customers a full-service commercial banking array of products and services and our employees will join one of the strongest country's strongest and most successful banking franchises which will provide even greater opportunities for them.

With that I will turn over the call over to Rene Jones and we'll be available during the Q&A session. Thank you.

Rene Jones

Thanks, Ron. For those of you following along on the website or who have printed out copies of the deck, I'll begin my comments around slide two. I'll start by echoing the comments from Bob and Ron. As they mentioned, the combination of the two companies provides a compelling strategic opportunity to bring M&T's community banking model to Hudson City's markets and expand M&T's already established commercial banking presence in that region, also the transaction enhances the risk profile of the combined companies and I'll cover that topic in a bit more detail later.

Most importantly as Bob mentioned, the partnership we create today will be accretive to capital. The pro forma Tier-1 common ratio is estimated to improve by roughly 30 to 40 basis points compared to M&T's standalone levels that we would have experienced had we not announce the transaction with an estimated range of 825 to 850 at closing. This is some-115 to 135 basis points above the level in existence at the end of the most recent quarter ended 6/30/2012. The deal will also be accretive to tangible book value per share by approximately 10% at close.

To recap, this not only closes the gap with respect to capital levels relative to our peers, but does so while supporting our highly return on tangible common equity ratios. The transaction is immediately accretive in 2013 with a high single-digit EPS accretion by 2014, and it provides above 18% IRR. In short, we've closed the gap between Tier-1 common of M&T and its peers, but we do so in a way that is supportive above our strong profitable franchise. Finally, we believe the transaction has low integration risk given Hudson City's simple business model and our extensive integration experience.

Slide three discusses the terms of the partnership. M&T's merger with Hudson City has been structured as a 60% stock and 40% cash transaction. Hudson City's shareholders received 0.8403 M&T common stock shares for each share of Hudson City. Based on M&T's closing price less Friday, this values Hudson City $7.22 per share, which equates to 0.8 times tangible book value per share as of June 30th.

It's important to note that when you factor in the March which primarily I'll focus on the restructuring that price actually represents about 1.2 times tangible book after the restructuring. It also represents a 12% premium to Hudson City's closing price on Friday.

The exchange ratio was fixed so that Hudson City shareholders will share in the economics of M&T stock price fully from day one. The aggregate value of the transaction is $3.7 billion. Included in a projections is planned restructuring of Hudson City's balance sheet at or shortly after closing. We would retire Hudson City's long-term debt by liquidating a comparable size investment securities portfolio and I'll cover this topic in detail later during this presentation.

We've conducted a comprehensive due diligence review over the next last month which included a number of on-site management meetings as well as a sample review of loan files. We estimate our estimate of the remaining future credit losses and Hudson City's portfolio, is $433 million, or 1.5% of the total loan portfolio which equates to about six years of Hudson City's annualized year-to-date net charge-offs.

Despite minimal branch overlap, we expect to realize about 24% cost savings largely from eliminating redundant outsourced data processing and service agreements. This includes any benefit that we might gain from reduction in FDIC assessment rates for Hudson City should that occur.

Our estimate of merger related expenses which includes systems integration cost as well as contract buyouts, amounts to $223 million pre-tax and it is important to note that about $120 million of that is expected to go to the P&L and what you will all recognize as merger related expenses that we typically talk about during transition periods with acquisitions.

We look to close the transaction second quarter of 2013, subject to approval by shareholders and from the respective regulatory agencies which includes the federal reserve is New York State Banking Department and New Jersey Banking and Insurance division. Finally, as Bob noted Ron Hermance has agreed to join M&T's board of directors.

Turning to slide five and six, the two organizations have a complimentary footprint in Hudson City, which significantly enhance our retail presence as Bob mentioned in the affluent tri-state metropolitan area. It's quite apparent from slide five that the transaction gets our desire today of staying in or close to our existing footprint, and operating in markets that we know and where our employees understand the community.

On slide six, you will see that shortly after closing, we expect the combined balance sheet of roughly $109 billion with $89 billion in the loan portfolio and $87 billion in deposit.

It is important to note that post closing the Hudson loan book will likely rundown further given the high prepayment speeds associated with the mortgage book. We estimate that average 2014 loan balances book for the Hudson City piece would approximate $20 billion. This would be mitigated by our organic growth of course in M&T's portfolio. As we said, we had 135 branches from Hudson City, 97 in New Jersey, nine in Fairfield, Connecticut 29 in Long Island.

Slide seven provides details on our restructuring plan for Hudson City's balance sheet. Hudson City currently has $13.4 billion in long-term debt. Out of this roughly a $0.5 billion is expected to be mature between now and close leaving just under $13 billion to be retired at closing.

Given the current interest rate environment, we estimate an additional cost or a fair value adjustment that will go into the balance sheet on the close of about $2.5 billion to repay the debt. This estimate is included in all of our projection and we've assumed that we would pay a total of about $15.5 billion dollars at or shortly after close to the retire Hudson's long-term debt.

You note that the net pre-tax restructuring costs of $2.3 billion will be reflective as purchase accounting adjustments, again, in the opening balance sheet, related to the transaction and would not impact the P&L. As shown on slide seven, post-restructuring the purchase accounting adjustments, we estimate the acquired $28 billion balance sheet comprised of mortgages funded with the core deposits, will be funded with core deposits.

Turning to slide eight. As many of you following M&T know, we have very asset-sensitive balance sheets, so if you look at page 69 of our 10-Q, it suggest that if interest rates were to gradually rise by 200 basis points, our net interest income for the next 12 months would improve roughly by $115 million. That figure is about $274 million for our 200-basis point instantaneous shock up in rates.

This allows us to absorb the interest rate risk inherited an Hudson City's balance sheet, which reacts unfavorably to rising rate environment post the restructuring. In essence, we start with a lot of stored need for fixed-rate assets. We've been relatively conservative, and as you bring that together with the restructured balance sheet, we actually post the transaction will still remain slightly assets-sensitive, so it's one of a very nice benefits of a transaction that make a lot of sense.

Additionally as a gradually replace some of the residential mortgage portfolio with commercial and in particular business banking loans, you will likely the see the profile migrate more to M&T's traditional type-profile.

Slide nine shows an illustrative impact of the planned restructuring on Hudson City's profitability, so the way I think about it is to look at the negative spread between long-term borrowings investment securities.

As of June 2012, Hudson City's borrowing costs 4.2% and it earned roughly 2.7% on its investment portfolio resolving in a negative spread of 1.5%. Given the $13 billion of debt that translates into roughly $200 million of improvement and NII, again this is illustrative as the actual size of the assets and asset run-off assumptions could change. The slide also shows the illustrative impact on net interest margin which improves from 2.1% to 3.9%. As a result, we expect little standalone impact to M&T's pre-existing net interest margin as we see it today.

Turning to slide 10. This provides a view of a pro forma loan composition. On a combined commercial real estate, excluding owner occupied real estate would comprise 19% of the portfolio compared to 29% today. Additionally, roughly 40% of the loan book would be marked representing a substantially de-risked balance sheet, so again to recap that fraction, we at the end of the day, we are adding capital accretive transaction, de-risking Hudson City's portfolio and we end up with a book of loans of 40% which has been mark-to-market through recent acquisitions. We feel this is consistent with those institutions' conservative structure and kind of makes us rock solid from a balance sheet perspective.

Slide 11, lists key fair value adjustments and their impact on Hudson City's capital base. I have already talked about the pre-tax restructuring cost of $2.3 billion. On an after-tax basis that's 1.4 billion. You then have the loan fair value adjustments. We talked about the $433 million of lifetime credit losses and if you adjust that for the interest rate mark, you also adjusted for the $280 million allowance that Hudson City carries. In the end on an after-tax basis, you get $400 million positive after-tax mark. Other adjustments that you'll note that are largely marks on time deposits, deposits and other small adjustments to the assets and liabilities.

In total, after-tax the impact of all marks is $1.3 billion reduction in tangible common equity. However, given the strong capital position that Hudson City brings to bear and after adjusting for the $1.5 million cash portion of the consideration it adds $1.7 billion of tangible comment equity to M&T.

Turning to slide 12, I have already talked about the accretion in returns. One point that I would like to emphasize on the slide is the impact under the BASEL III proposals that out there today. Our preliminary analysis to understand BASEL III and their impacts on the risk weighting calculation for Hudson City Hudson City, particularly their residential mortgage portfolio suggests very limited impact.

Our analysis suggests that the transaction would be capital accretive even under the recent release for proposal. To think about it, if you think about it today, Hudson City has an average risk weight of about 60 basis points. After looking through the portfolio and in places where we were unsure taking some of the maximum charge under the NPR. We estimated for purposes of this analysis that the risk weighting would be somewhere between 70% and 75% relative to the 60% that exist today.

Additionally, Hudson City doesn't have any mortgage servicing rights, and the transaction really adds very minimum amount of DTA to M&T's current position. If you think about it, this institution has very, very strong credit, so what we're dealing with in the adjustments to the mark are not setting aside money for future losses. We are actually retiring the debt which doesn't create deferred tax assets, so the deal is very unique in that way.

What that means is that we are adding significant amounts of tangible common equity, but as you know the BASEL III rules sort of have these artificial limits 10% and 15% on how much MSR and deferred tax assets you can use. So what that means is a substantial amount of the capital is actually used to free up our deferred tax assets as we go forward and that's very positive under the new capital rules.

Moving away from the financials for a minute, Hudson City's markets, I'm looking at slide 13, post over 7,500 middle market customers and over 300,000 small business companies and provide significant commercial banking opportunities for M&T to improve its penetration in the region. You can see from the slide, we've done this before.

In fact on slide 14, I actually called at slide that have done before slides and what it shows is where we started in Baltimore back in 2003 with our community banking portfolio, so not the whole products community banking portfolio which is primarily middle market and small business loans.

If you look at the slide, we've leveraged our community banking model in the past there and we now have number one market share for lead bank relationships among middle market companies both, in Baltimore and the state of Maryland. We are number one SBA lender in Baltimore. We've been number one branch share in Baltimore and the number two deposit share in Baltimore and over that whole period we've been able to achieve more than 10% compounded annual growth in our loan portfolio.

If you go to slide 15 and 16, you will see that we've already had a very established lending presence as Bob mentioned in the regions that we are talking about today and we have been able to grow the loan portfolio despite a limited branch presence. However, if you look to the bottom right of that slide on page 15, you will note the limited deposit base that Bob mentioned, so expending that branch presence is going to be important to us.

If you think about M&T's community bank model, we are self-funded by deposits in every single community that we operate in with the exception of metro that this deal changes that and we think it adds a degree of stability to our already very safe operating model.

If you go to slide 18 and 19, talk a little about our excellent credit performance of both companies. We have a very strong history. Slide 19 talks a little bit about some of the key portfolio characteristics for Hudson City's loan portfolio. These were things that most of you probably know well. The portfolio has original loan to value of 68 and almost has no exposure to the Sunshine state which also is reflective of their relatively much better charge-off history.

I will also point out that as noted in the slide, the granularity of the portfolio. We talk about a granular portfolio at M&T very often. 69,937 loans only nine only nine of our loans are greater than $3 million. Only 161 are greater than $2 million. In the small commercial portfolio of $100 million loans, the largest is $6 million.

Slide 20 through 22, talk about the fact that we believe this deal has low integration risk and that's a combination of factors that go into that which are our experience in acquisition at M&T in converting risk in the past combined with the fact that Hudson City's knowledge of its markets as well as its management team being a partnership with M&T and also the monoline nature of the residential mortgage business. Finally the fact that core operating systems are outsourced today which minimizes systems immigration complexities.

I'll jump to slide 22, I think the smallest characteristic of that team that you're dealing is noted on the slide for 70 most senior people at M&T. The most recent we completed transaction which was announced two years ago and completed about a year ago was Wilmington Trust. It was the 12th such deal in which they have worked 13 senior management M&T executives have worked on all 23 acquisitions undertaken in the past 25 years in essence we do this, we do it pretty well and we've got a strong team.

I'll finish with a couple of comments on the M&T story. For those of you who may not be familiar with M&T, we think our approach is relatively simple. We provide banking services in the community where we live and work. We so focus on carefully underwritten lending, focused on local knowledge and we think this partnership extends that with the strong credit culture that we are inheriting with Hudson City. We take prudent acquisitions and we go when and where it makes sense.

I don't intend to cover every slide in this section, but I will encourage you to review them over on your own if you are not familiar with them and/or we are, but I will touch on the results on page 26.

M&T has been profitable in every quarter in last 36 years, 44 consecutive quarters since '83 when Bob came to M&T along with other members of the management team. We've achieved an annual compounded growth in operating earnings of 17%. We are the only commercial bank in the S&P not to cut its dividend or executed dilutive equity offering during the financial crisis.

We have over 16% annualized return to our shareholders since 1983 through this June. 22nd highest total return to our shareholders in the universe of all publicly traded companies, continuously publicly traded companies that that were in existence since 1980. We've outperformed the S&P index by 18.47% over 3, 5 and 10-year period ending this past June and we have the highest stock price appreciation among the hundred largest banks that existed in 1983, and I'll remind you that only 23 of those remain operating today.

That completes my comments. We will now open up the call for questions for which Beverly will review the instructions.

Question-and-Answer Session

Operator

The floor is now opened for question. (Operator Instructions). Our first question is coming from Ken Zerbe with Morgan Stanley.

Ken Zerbe - Morgan Stanley

Great. Thanks. I guess the real quick question to start with, in terms of any kind of break-up fee. Is there any breakup fees associated with the deal if it does not close?

Rene Jones

Yes, Ken. There's a termination fee that would be 3.5% of the merger value and that goes to both, at M&T and it goes to both parties in the transaction.

Ken Zerbe - Morgan Stanley

Okay. I guess in terms of Hudson strategy, obviously during higher interest rate scenarios, Hudson certainly was a very fast grower. Do you guys plan to continue their resi growth strategy with when rates do eventually rise, or as is now a complete change of their business model and you are using more of their branches to support the commercial growth?

Rene Jones

Well, I think out of the gate, our first focus within the first 18 months I think will be to sort of make sure we are all comfortable with the size of the portfolio and the environment, so you've got a lot of natural run-off in portfolio. I talked about some of those numbers.

After that we are going to get familiar with the franchise. These guys have done a very nice job on building a franchise that has worked from a credit perspective, I think our appetite for residential mortgages has been typically much, much less, but having said that, we tend to learn from partnerships. My sense is smaller than it is today. We would also intend clearly to do a lot of agency papers if we could through those branches in the 135 branches, so I think we'll try to take the best of both worlds, but you know us, Ken, I mean we are relatively conservative.

Ken Zerbe - Morgan Stanley

Okay. Then just last quick question. You mentioned it's going to take a little while to hire up the commercial lenders for Hudson's branches. Is any of the growth in commercial included in your IRR or EPS accretion assumptions?

Rene Jones

Not for the first couple of years, because I think we have to hire over hundred individual. I think it takes time to ramp that up. The way I would think about it, I mean, this is going to be rough, but as we were thinking about it maybe we grow $4 billion book by 2018, right, so relatively modest transition period that we have.

Ken Zerbe - Morgan Stanley

Got you. Okay. All right. Thanks very much.

Rene Jones

Sure.

Operator

Your next question comes from the line of Erika Penala with Bank of America.

Erika Penala - Bank of America

Good morning. My first question was on the purchase accounting adjustment upwards after you take into account the lifetime loan marks. I mean, obviously, Hudson City's resi portfolio was at 4.8% or something, so it makes sense, but does that mean after you close the deal the yield that you are bringing on their notebook is going to be much lower than the yield is today, because you've made that purchase accounting adjustments for the interest rate?

Ron Hermance

Yes. I think you've got it Erika. I think that obviously the loans are marked next year and we'll have to look it, but as we thought of it today, maybe the 481 yield that was in the Hudson City's most recent 10-Q looks more like 350, 360 under that scenario because rates are down today and so they are more reflective of what you might get today for those mortgages, but you've got it.

Erika Penala - Bank of America

Got it. And also I just wanted to clarify what you were telling us about BASEL III, so I guess my first question is a clarification one. When you say that it goes from 60% to 70% to 75%. I'm assuming you are saying Hudson City standalone?

Ron Hermance

Yes. That was a comment about the risk weighting profile today versus where we assumed it would be under BASEL III.

Erika Penala - Bank of America

Since you mentioned that putting together the balance sheets could free up some deferred tax asset. Does the manager, is it not only capital accretive, but could you sort of to get to where you have to be on BASEL III more quickly because of this deal. Am I interpreting that comment correctly?

Ron Hermance

I think so. Let me make a couple of comments, so everybody has been trying to figure out even before the rules finalized what the impact will be on regional banks of the capital rules and we said that we will probably come out as we get to the first quarter somewhere in January, that time frame with our estimates. When we do more work and will look at M&T, the biggest impact of BASEL III is the fact that we have acquired a number of institutions instead of credit marks and we have not yet realized the losses, so we have deferred taxes.

One of two things could happen. One, we could realize the losses that we predicted which is in a very short timeframe and that frees up the tax benefit, or better yet maybe the losses won't happen and that's an even bigger benefit, so I think when people look at our issue around BASEL III and net deferred tax asset issue, it's actually one where you got to not look at the spot rate, you've got to look at what happens over time.

Then you combine that with capital from Hudson City at no MSR and very little deferred tax assets. That means every dollar that they generate in that franchise going forward, actually goes to cure the M&T problem, so yes out of the gate it's higher, Then on top of that, because of the nature and of the timing difference that we are dealing with, it actually gives you a lot of positive benefit, I believe, the way the rules are written today.

Erika Penala - Bank of America

Got it. Okay. Make sense. Thank you so much.

Operator

Your next question comes from the line of Todd Hagerman with Sterne Agee.

Todd Hagerman - Sterne Agee

Good morning, everybody. Rene, a couple of questions just in terms of the capital stack kind of pro forma if you will? With the new perpetual preferred that you guys issued and the assumption that with the capital plan being submit to the Fed, first question is assuming with the close in the second quarter next year and guessing that that is going to be submitted as part of this [CCAR] program and then secondly how should we think about with the TARP being repaid if you will, kind of your outlook now in terms of trust preferred, the capital plan where it was pre-and post-the TARP and how you now think about the equity versus the preferred kind of component with accretion attached to this deal?

Rene Jones

To the first part of the question Todd, obviously we got to go through the capital planning process which is the combination of this [CCAR] process and our application process. I kind of view them as one, and so we'll be tied together in that process as you would expect and that tells us a lot, so we'll be dimensioning before what we plan to do survey not only with the finding the transaction, but our all combine balance sheet for those in that process and that takes long of course.

With the TARP think about it this way, we had just under $900 million of qualifying preferred equity, so not the hybrid that's retiring. We have at $73 million of risk weighted assets. Hudson adds about 16 billion, so call it 90 billion, so now we are at about 1%. We said for a long time that we probably need one maybe a size of 1.5% of our risk-weighted assets preferred, right? So we are actually in a pretty good position today, we have time to think about what you want to do, but the logic is not different which just have a little bit bigger balance sheet.

Todd Hagerman - Sterne Agee

Okay. Then just to clarify, again, I am assuming with the capital creation there is really consistent with M&T no common equity component that we should necessarily anticipate if that's a fair comment.

Rene Jones

We have no transfer for common equity rates other than issuing shares to our partners here.

Todd Hagerman - Sterne Agee

Right. Okay. Then just on the other side. Just in terms of on the liability side of the balance sheet with the marks and the combine assets sensitivity, you mentioned just kind of almost those essential wash on the margin. Could you just give a little bit more detail on that as we walk through kind of both sides with the mark on HCBK?

Rene Jones

Todd, I think you see our last kind of slides, I can't tell you where our standalone margin will be next year. We've talked about quite downward pressure just because where the environment is, so that all of our comments, Don and my commencements hold still.

When you look at it, it goes a long way when you address that restructuring issue, and you'll see the full potential of that margin on slide that I mentioned and that's really that simple just bringing the two together, actually in my mind, we will have if this has any negative impact it will not be a material, a couple of basis points something like that and we will refine that as we go with the estimates, but we feel pretty good about that statement.

Todd Hagerman - Sterne Agee

Okay. Terrific. Thanks so much.

Operator

Your next question comes from the line of Craig Siegenthaler with Credit Suisse.

Craig Siegenthaler - Credit Suisse

Thanks. Rene, I am wondering if this transaction will change your overall banking behavior all. In that, will there be more of a need to grow kind of non-resi mortgage loans going forward and will there be more of a desire to grow deposits may be quicker just to replace some of the funding that's coming off?

Rene Jones

Yes. I don't know I was going to ask Bob, but I think it's hard for us all to change their stripes the right? Obviously the portfolio will be smaller than it is today from the restructuring in an initial run-off, but then I do know I'd ask you, Bob.

Robert Wilmers

We're a community bank. We like to provide all the services the bank will need, and when you do that our loans usually end up being evenly balanced so speak, and I expect that will happen again here. We are certainly not going to go out and make a great campaign or do mortgages on a nationwide basis.

Rene Jones

I would just add to that. You know us. We don't put a lot of revenue synergies in transactions, but I would say look at Syracuse, New York, and look at that or Baltimore, Maryland. That's what we are looking to create. We would like to be the number one small business lender in New Jersey and we'd like to be the number one small business lender online. We actually I think are in Europe, and they would like to be the same in Southern Connecticut, right? That's what we are trying to do. I think it's pretty straight forward. We've been doing for a long time.

Robert Wilmers

That's what happens when our troops get out and try to do all the business we can, good business we can.

Craig Siegenthaler - Credit Suisse

Thanks, Bob. Rene, just a follow-up on the accretion guidance of high single digits. Does that made both, a 24% decrease in non-interest expense at Hudson City and also the hundred and 80 basis point increase in the net interest margin with those two fully factored in for '14?

Rene Jones

Yes. All of that's in there. I don't think we get all the expenses. It will be a run rate of those expenses by December of 2014.

Yes. Depending on the size of balance sheet, right, so you got to look at that too.

Craig Siegenthaler - Credit Suisse

Got it. Thanks for taking my questions.

Operator

The next question comes from the line of the Bob Ramsey with FBR.

Bob Ramsey - FBR

Hi. Good morning. I was hoping if you could talk a little about a little the process. Who approach who and was at a competitive process with the parties?

Ron Hermance

Actually, it wasn't a competitive process. Bob this is Ron Hermance. Actually it was one where we were looking as we say in the press release to start to develop our own strategy, and in so doing we presented to the board a staffing plan that called for approximately 230 people to be hired over the next couple of years to ramp up and do the kind of things that M&T was doing. Now it was not a bidding process at all. It was one where we were pleased to be contacted by M&T and we took it further as time went along.

Bob Ramsey - FBR

Okay. That's great thank you, Ron. I'm curious too. I appreciate on slide 11, how you give all the adjustments that get you to a net tangible equity contribution. I noticed along page seven, there's 2.2 billion common equity number after the restructuring. Could you just help reconcile those two numbers and what the difference is?

Ron Hermance

The biggest issue is goodwill.

Bob Ramsey - FBR

Okay. Yes. I got you that make sense. Then in terms of the share count that as you have used here. Could you tell me how the unallocated ESOP shares are treated in the transaction and what the actual number of Hudson City shares are that are being converted or cashed out?

Ron Hermance

I can tell you that it is going to change, right? We are looking at issuing roughly 26 million shares. Actually 25.7 million shares, which includes all of that in there, and if you look at where we are now, you combine the two. It gets you somewhere around one 152 million shares, somewhere in that range. That all moves depending on what happens with the prize and all of that stuff.

Bob Ramsey - FBR

Yes. Okay.

Ron Hermance

The shares are generally going to be pretty stable, because our deal structure fixes the numbers of shares issued.

Bob Ramsey - FBR

Right. Is the cash component also based on that fixed share exchange ratio and so just the cash for value fluctuate or is the cash value fixed?

Ron Hermance

That's what we love about this partnership. I mean, from the minute we announce the deal and signed our agreement, Hudson City and M&T shared equally in the upside, so yes the cash component obviously will be adjusted just like the stock component and then the elections will be made at the time of the proxy process.

Bob Ramsey - FBR

Great. Then last question. With a close day in the second quarter any sense of whether it will be early or late in the quarter next year?

Robert Wilmers

That's just wonderful question. No idea.

Bob Ramsey - FBR

All right. Thank you very much guys. Appreciate it.

Operator

Your next question comes from the line of Matt O'Connor with Deutsche Bank.

Matt O'Connor - Deutsche Bank

Hi, guys. I was just hoping to follow up on the balance sheet size over time. You gave us a couple of numbers talking about the loan book going down to about $20 billion in 2014, and then over several years potentially growing kind of everything else by $4 billion? I think you said by 2018.

I am just trying to think of the all-in size of balance sheet of those remaining $20 billion of residential mortgages. Does that just run-off to our very lower number? Maybe half of those you would can consider to keep, or you would re-originate and keep? Just how much of residential mortgage do you think we can pencil on over time to add to the $4 billion?

Ron Hermance

I think our focus post 2014is really going to be heavily on trying to round up that footprint in terms of middle markets and small business loans. It's very early to kind of say what we would do that, but I think I will leave it at that. I mean we have got a lot of work to do to kind of think about that question and then I guess, Matt, if you think about it, it's nice we've lowered our concentration part of the gate on commercial real estate. What we've done is think and Bob sort of touched on this what represents a community bank, one of the sizes of each of those things and it's just going to take us some time.

We do think that a nice capability that these guys have done a great job on how to underwrite the say jumbo loans. Quite frankly, when jumbo loans would come up at M&T, if we could eventually get ourselves to do any of them, finally by the time we got that we probably in a retail network weren't able to get a lot of them done, so it's new. We'll look at it and we'll see it adds a capability, but I don't think you can expect the balance sheet in those regions to look a lot different overtime than in typical M&T balance sheet.

Matt O'Connor - Deutsche Bank

Okay. Obviously there's a lot of upfront earnings accretion, capital accretion and revenue synergies overtime, but it seems like the size of the balance sheet will continue to come down for several years as you are aligned to the mix of yours.

Ron Hermance

That could happen. I don't know about several years, but the size of the balance sheet from where it starts on day one, definitely will come down, right? Because it takes a longer to grow commercial book and business banking loans. That will be probably be outpaced by run-off, so you are on the right track. Just sort of exact numbers are hard when you get more than two years out.

Matt O'Connor - Deutsche Bank

Okay. Then just separately, you talked about hiring 200 commercial lenders, which I don't think it's a huge number in terms of expense outlay, but just all-in as we think about the cost to make this more M&T-like, do you have any initial thoughts on that and I assume that's not netted with the cost saves that you provided, right?

Rene Jones

Yes. Just a clarity, as Ron was thinking about with his board, they were thinking about plan about 200. We think with M&T, because we've got existing people there that's about hundred and that's all baked into the 24% cost savings net.

Matt O'Connor - Deutsche Bank

I guess the cost saves is that of the investment different community make?

Rene Jones

Yes.

Matt O'Connor - Deutsche Bank

Okay. That's a full. Thank you.

Rene Jones

Sure.

Operator

Your next question comes from the line of Matt Burnell with Wells Fargo Securities. Matt, your line is open.

Matt Burnell - Wells Fargo Securities

Good morning. Thanks for taking my question. I wanted to ask a question about potential revenue synergies. I know that you don't really add those into your calculations for IRR, but putting your last acquisition together with this acquisition, what do you think the opportunities might be in terms of focusing greater effort on mid-market and small business loans to push other types of trust products on those customers and what opportunities do you think might come out of this deal from the products that you have got in the Wilmington deal.

Rene Jones

I'll make a couple of comments. Maybe ask Ron. They know this market, the nature of the market with the businesses that are here. I mean, I think let's say that it just takes time, right? When you look at what happened and Baltimore, we took some very small pre-existing businesses and we were able to grow them over time, so it's hard for me to tell you what would be a X number of fine number, but my senses that overtime it's particularly with the branches you should be able to do more. These markets are very affluent and very wealthy, so there has got to be some add-on effect, but that happens over time. Ron, I don't know.

Ron Hermance

Yes. I think that Rene got it right. Understand that our branches on average have $170 million per branch on deposit, and that is without having any demand deposits, commercial demand deposits which we have to tell you that from time-to-time our branch managers will tell us when are you going to get commercial checking, when are you going to get products like that, so often times we have the individual account and we don't have the commercial account, so I would say as Rene says it's going to take time but we already have relationships with many of the individuals who own these businesses, and by introducing small business lenders in each branch we are in regionally I think we are going to have the large degree of success.

We are the fourth largest. They will have the fourth largest deposit share in New Jersey, right away and that's all consumer traffic, so I think you're going to see once they start hiring into this market some business generators and along with our branch managers they are going to see quite an influx in businessmen lending.

Matt Burnell - Wells Fargo Securities

Then if I can just a follow-up on the cost savings target. It looks little bit low for an end market merger and I appreciate that there is not a lot of branch overlap, but I'm just curious as to if the numbers that you have put in the press release or the slide deck of 24% operating cost savings include some investment. What's the percentage saving pre the investment?

Rene Jones

It's almost senseless to unwind that. We'll just figure out what's optimal. I don't know? Hundred people? Figure out what the average seller are you kind of get a guess on that and then there is probably some infrastructure in the branches, but if you weren't asking the call I'll pick it down for you in the third quarter call.

Matt Burnell - Wells Fargo Securities

Okay. Thanks a much.

Rene Jones

Sure.

Operator

Your next question comes from the line of Ken Usdin with Jefferies & Company.

Unidentified Analyst

Hi, good morning. This is actually [Brian] from Ken's team. I was wondering if you guys could give an estimate for how much goodwill you are creating from this deal and then also what core deposit intangible you are using and how long that will be amortized over.

Rene Jones

There is no core deposit intangible because of the nature of the time deposits and where rates are. Their goodwill is mid-300, 320-350 range, but remember I gave you that range because you don't set the goodwill until the end of the deal, right? So, but was modeled it somewhere in that range.

Unidentified Analyst

Okay. We appreciate the color you guys gave on the BASEL III risk-weighted assets inflation for Hudson City. Do have what the just legacy M&T risk-weighted asset inflation would be? Just as the new BASEL III rules stand right now?

Rene Jones

No, as we said in the last fall, once the rules are finalized, we are doing all of our maths, lots of MBAs got of figure out how the rule works and maybe by the time we get to January we will talk about what we think these impact is.

Unidentified Analyst

All right. Thanks, guys.

Operator

Your next question comes from the line of Brian Clock with Keefe, Bruyette & Woods

Brian Clock - Keefe, Bruyette & Woods

Hi. Good morning, guys.

Rene Jones

Hi, Brian.

Brian Clock - Keefe, Bruyette & Woods

Actually just a real quick follow-up, Rene. From the first earlier, the difference between the tangible common equity at Hudson City, the $3.2 billion on slide 11 and then the $2.2 billion on slide seven. You said most of that was goodwill, I think you just said the goodwill was, say, 300 to 350?

Rene Jones

Brian, can't believe you missed this. The banks who earned money between now and then.

Brian Clock - Keefe, Bruyette & Woods

All right. I got you. I'm with you. That's at closing June second quarter 2013 at 3.2?

Rene Jones

Yes, so there's a couple of other component Hudson City will make money over the course of next several months.

Brian Clock - Keefe, Bruyette & Woods

Got it. Okay. All right, so and then I guess thinking about the second closing timeframe, it seems like with your history and your integration track record, seems like it it's a little bit longer than your traditional closing. Is there any reasons for that, or just or just maybe because of the size of the deal just little extra timing?

Rene Jones

I think there's a lot going on. I think, there was a larger rules, we've got to make sure we take the time it takes to go through our capital planning and stress testing. I think deals have taken longer to be approved, because people are very busy providing rules at a lot of the regulatory agencies and if you look at that deal and there's a couple of them out there that have taken actually longer than we are suggestion here, so it's just our guess based on the process and where we are today.

Brian Clock - Keefe, Bruyette & Woods

Okay. Fair enough. Last question now on the cash financing side of this, I guess what's your initial thoughts, senior debt or I know you talked earlier about obviously not issue any other comment outside of the 60% here, but you did kind of mention where your targets and the capital stack and where preferred would be, would you think about issuing preferred for part of that cash portion or would you just look at available cash and senior debt.

Rene Jones

We'll have to think about all that, but we have a price pack from?

Brian Clock - Keefe, Bruyette & Woods

Yes. We'll talk.

Rene Jones

We'll think about all of that as we move forward, but we have a lot of available cash to start with, right? If you start to reduce that whole number in the first place and then we got to think about it, because we got all the hybrids which some of our hybrids floated once they becomes disqualified, float at LIBOR plus 60, right, so it's actually paper and we will have to look through all of that and determine what we need to do so take some time.

Brian Clock - Keefe, Bruyette & Woods

All right. Great. Thanks for taking my question.

Operator

Your next question comes from the line of line of Marty Mosby with Guggenheim Partners.

Marty Mosby - Guggenheim Partners

Good morning. I had two questions, Rene. One is if you just look at the strategic value-add of the acquisition, you look at the tangible book value accretion of about 10%, somewhere in 8% to 10%. Then once you make the adjustments for what you are doing on that de-leveraging and the investment portfolio, we are able to raise Hudson City's return on tangible common equity such that you are not only diluting your returns. Will that be the way you kind of look at it?

Rene Jones

Exactly.

Marty Mosby - Guggenheim Partners

Okay. Then secondly what I wanted to ask was, you bought what I thought was interesting, $223 million of merger related chargers. I am going to ask this question of investment expenses in other way. You said $120 million will be things that we would see as merger related or one-timers, or things we would be separating out. Is that $100 million roughly kind of an idea of operating expenses related to the restructuring and things like that we wouldn't see in merger related highlight.?

Rene Jones

We usually talk about them all, but there are severance change of control and all of those types of things, right? That are done as part of the marks and the part of the balance sheet, the opening balance sheet. I mentioned it, because last time we did Wilmington, we mentioned the full amount too and people got confused about that as to what went through, so I'll tried to break it down for you.

Marty Mosby - Guggenheim Partners

Got you. All right. Thanks.

Operator

Your next question comes from the line of Gerard Cassidy with RBC.

Gerard Cassidy - RBC

Thank you. Good morning, Rene. On your due diligence, Rene, do you guys anticipate that there will be most expenditure in upgrading the branches? Obviously, the signs will change, but are the branches in par with what M&T has now for branches?

Rene Jones

I think we like the branches. I think we will have to think about the products since that will be driven by the products and services that are there, so when you say upgrade, I don't know if we are talking about it the same way. I like the sign issue, but I think checking account products and the different things that we do in the branches and the products that we sell, over time we'll have to do some enhancements, I would say, and we have factored some of that in, but the question is how fast do you go, right? You got the right topic.

Gerard Cassidy - RBC

Okay. In terms of hiring the commercial loan officers, do you have any experience from your past deals possibly the Provident deal in Baltimore on hiring commercial loan officers, how difficult or how easy it will be for you guys?

Rene Jones

I guess what I will say is that we will take time to hire right people, but we've actually been adding, so it's not new. We've been think about hiring people already, because we were trying to do business in New Jersey, and we got a great, very long tenured team at some point maybe I hooked on into putting the tenure of our team in the metro area up on slide and I think there is one individual there that's got three and a half years and that's probably because he spent 25 with JPMorgan before, but everybody else is very long-tenured, so we know the people in the markets, right? I think that's one part that I feel pretty good about.

Ron Hermance

We also have a cadre that have experience that we can bring here and also remember Hudson City has got talented people that can adapt as well.

Gerard Cassidy - RBC

Thank you. Final question, Rene, on the Tier 1 common ratio. I think you pointed out that it's the best interpretation that you have it was the saddest thing about capital ratios and your proposals are out for comment as we all know and by October I guess everybody is going to get their comments in. Is there a possibility that there Tier-1 common ratio could even be higher should Fed ease off some of the capital requirements on home mortgages and home equity loans from the original proposal?

Rene Jones

I don't know. It's just too complex to tell. I appreciate the question.

Gerard Cassidy - RBC

Okay. Thank you.

Operator

Your next question comes from the line of Rick Weiss with Janney.

Rick Weiss - Janney

Hi, good morning. I am just curious, when talking about the restructuring liability portfolio, I guess the assets too, would it make sense to do it sooner rather than later? Why we thought closing is at because of accounting reasons or possibly just out of caution that deal might not happen?

Rene Jones

Look, the guys have been in a pretty good position actually. They've got this one issue, but right now think about the issue is that rates would rise rapidly between now and the close of the transaction. There is very little change in the balance sheet, because the structured debt actually offsets the other side of the equation, right, so it's in pretty good shape, so how you do that, right, matters and you wouldn't want to do that too soon without doing it all in a relatively reasonable timeframe. Right? With the rising rates, we're pretty, pretty well.

Rick Weiss - Janney

Okay. I see that, and also I know Hudson's policy has always been the retained loans in portfolio, eventually would you see just originating sale and adding to your mortgage banking product?

Rene Jones

Yes. I think so if I understand the question, I think that's another opportunity for us.

Rick Weiss - Janney

Okay, so it wouldn't be continuing the policy of just being portfolio lender only for that product?

Rene Jones

No.

Rick Weiss - Janney

Okay. Got it. Thank you.

Operator

We have time for one final question. Our final question comes from Mike Turner with CompassPoint.

Mike Turner - CompassPoint

Hi, good morning. Just a follow-up, Rene, on operating cost. Did I hear that correctly that the 24% savings doesn't include potential savings for FDIC expense?

Rene Jones

Yes. That's right.

Mike Turner - CompassPoint

Is there anything that would should either think you won't get additional savings? I mean it's kind of my understanding that their FDIC assessment should likely come down next year once the MOU is removed.

Rene Jones

Yes. I think that's right. I think though, again, it's hard to figure out exactly how much, because it depends on the size of balance sheet and how quickly things rundown, but yes. There is definite savings there, definitely an opportunity. The question will be how much is it, right, so you have to take a look at it yourself and then we can compare those next year.

Mike Turner - CompassPoint

Okay. Thanks. Then also I assume is the dividend at Hudson City going to be maintained through the end of next year or through the close?

Ron Hermance

It's a pretty good question. We hope it is. We've talked to our regulators, but they still want to opine on each quarter going forward.

Mike Turner - CompassPoint

Okay. Thank you very much.

Rene Jones

Are we all set then? Again, thank you all for participating today. As always if clarification of any items on the call or news release if necessary, please contact our investor relations department at 716-842-5138. Members of the media should contact. Mike Zabel, our Communications Director at 716-481-1458.

Ron Hermance

Thank you.

Operator

Thank you. This does conclude today's conference call and webcast. The audio replay will be available beginning at 1:00 pm Eastern Time. The dial-in number is 800-585-8367, and enter pin 25139668. Today's webcast will also be available on M&T Bank investor relations website at http://ir.mandtbank.com/.

This concludes today's announcement. Please disconnect your lines at this time and have a wonderful day.

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